Calculate the expected return of portfolio A with a beta of 1.8. (Round your answer to 2 decimal
places.)
What is the alpha of portfolio A. (Negative value should be indicated by a minus sign.Round
your answer to 2 decimal places.)
Consider the following information:
Solution
a. expected return = Rf + beta [ Rm - Rf]
= 0.07 + 1.8 [ 0.11 - 0.07 ]
= 0.07 + 1.8 [0.04]
= 0.07 + 0.072 = 0.142 or 14.2%
b. Alpha means excess of rate of return
Alpha = Rf + beta [ Rm - Rf] - expected return
= 0.07 + 1.8 [ 0.11 - 0.07] - 0.142
= 0.142 - 0.142 = 0
Alpha is negative , the performance criteria revealsthat manger has not shown strong market
timing skills.
c. Yes, CAPM is valid the above situation..
Calculate the expected return of portfolio A with a beta of .pdf
1. Calculate the expected return of portfolio A with a beta of 1.8. (Round your answer to 2 decimal
places.)
What is the alpha of portfolio A. (Negative value should be indicated by a minus sign.Round
your answer to 2 decimal places.)
Consider the following information:
Solution
a. expected return = Rf + beta [ Rm - Rf]
= 0.07 + 1.8 [ 0.11 - 0.07 ]
= 0.07 + 1.8 [0.04]
= 0.07 + 0.072 = 0.142 or 14.2%
b. Alpha means excess of rate of return
Alpha = Rf + beta [ Rm - Rf] - expected return
= 0.07 + 1.8 [ 0.11 - 0.07] - 0.142
= 0.142 - 0.142 = 0
Alpha is negative , the performance criteria revealsthat manger has not shown strong market
timing skills.
c. Yes, CAPM is valid the above situation.
![Calculate the expected return of portfolio A with a beta of 1.8. (Round your answer to 2 decimal
places.)
What is the alpha of portfolio A. (Negative value should be indicated by a minus sign.Round
your answer to 2 decimal places.)
Consider the following information:
Solution
a. expected return = Rf + beta [ Rm - Rf]
= 0.07 + 1.8 [ 0.11 - 0.07 ]
= 0.07 + 1.8 [0.04]
= 0.07 + 0.072 = 0.142 or 14.2%
b. Alpha means excess of rate of return
Alpha = Rf + beta [ Rm - Rf] - expected return
= 0.07 + 1.8 [ 0.11 - 0.07] - 0.142
= 0.142 - 0.142 = 0
Alpha is negative , the performance criteria revealsthat manger has not shown strong market
timing skills.
c. Yes, CAPM is valid the above situation.](https://image.slidesharecdn.com/calculatetheexpectedreturnofportfolioawithabetaof-230326031950-5ce902bc/85/Calculate-the-expected-return-of-portfolio-A-with-a-beta-of-pdf-1-320.jpg)
